UK consumer price inflation eased to 3% in January 2026, down from 3.4% in December 2025, according to the latest figures from the Office for National Statistics. It is the lowest annual rate since March 2025 and brings inflation closer to the Bank of England’s 2% target, although it remains above that level.
The decline was driven by slower increases in transport and food prices. Transport costs rose by 2.7% year on year, down from 4.0% in December, reflecting falls in fuel prices and moderated air fare inflation. Food and non-alcoholic beverages increased by 3.6%, easing from 4.5%.
Housing and household services inflation slowed to 4.5% from 4.9%, while recreation and culture edged down to 2.6% from 2.7%. In contrast, restaurants and hotels saw price growth accelerate to 4.1% from 3.8%.
On a monthly basis, consumer prices fell by 0.5% in January, compared with a 0.4% rise in December. Core inflation, which excludes energy, food, alcohol and tobacco, dropped to 3.1% from 3.2%, its lowest level since August 2021. Services inflation edged down to 4.4% from 4.5%.
The figures have strengthened expectations of an interest rate cut by the Bank of England, with market pricing indicating a high probability of a reduction in March 2026. The Bank had previously anticipated inflation nearing its 2% target by April, influenced in part by energy price developments. Economists say the downward trend supports the case for further cuts later in the year as underlying pressures moderate.
Despite the improvement, financial experts warn that households continue to face elevated essential costs after several years of sharp price rises.
Derence Lee, chief finance officer at Shepherds Friendly, said: “The latest UK inflation rate has fallen to 3%, which is welcome news for many households after several years of intense cost pressures. Slower inflation, particularly in everyday essentials, suggests the worst of the squeeze may be behind us and raises expectations of an interest rate cut in the coming months.”
“However, it’s important to remember that lower inflation doesn’t necessarily mean lower prices, but rather that prices are rising more slowly. For many families, the cost of essentials remains significantly higher than they were a few years ago, and this cumulative impact continues to strain budgets.”
“Against this backdrop, it’s important not to become complacent as small, proactive decisions can make a meaningful difference. For instance, making use of tax-efficient investment allowances early in the year, such as the ISA allowance, can allow long-term investments more time to grow and helps protect purchasing power against inflation. Alongside this, reviewing household budgets and managing shorter-term savings carefully can help to ease day-to-day financial strain.”
“Ultimately, staying proactive rather than reactive is key. One effective way to help your money keep pace with inflation is to invest in a stocks and shares ISA for long-term growth. Though, it’s important to remember that investing involves risk and the value of investments can fall as well as rise. By planning ahead, investing regularly, and keeping long-term goals in focus, people can help ensure their money works harder for them, even when prices of everyday items are continuing to rise.”
Forecasts from sources including the Treasury suggest inflation could average around 2.2% by the end of 2026, supporting a path towards greater stability.